"Above all Germany must be reassured that greater risk-sharing will not amount to handing its credit card to profligate governments. Mr Hollande might tell Mrs Merkel that creating a more solid euro zone, far from creating moral hazard, will make it easier to threaten Greece or others with expulsion. And setting out clear conditions for the introduction of Eurobonds could create incentives for countries to keep to the path of reform."

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Unless anyone can give a reason why this arrangement should fare any better than the previous agreements with Greece, pooling debt with them, and thus be liable for their spending, is pure madness.

As soon as access to cheap credit is restored, the whole thing will turn into a loop.

But don't forget: the EU is NOT about building something new, working together in good faith. The EU is about using wishy-washy discours about love, peace and social responsibility to cajole your neighbour into giving you something for nothing. This works especially well if this neighbour is a bit of a hardworking, straightforward simpleton with a 60-year old guilt complex and a knack for engineering but with a lack of political and negotiating skills, and you are yourselve a refined aristocrat, connaisseur of fine wines with "savoir vivre".

Is the difference in interest rate fair? Yes, and is possibly still too small, given that it should reflect the difference in creditworthiness.
Hollande is looking for alley to help himself and the French (and French Banks).
He knows too well that French Banks are strongly engaged in the periphery and that the deposit flight will hit France sooner or later as well.
This is about shielding the elites in the periphery from facing reality (the population is doing so for a while).
And wouldn't getting a grip at the structural issues in the periphery mean that the same elites' stop fleecing their own population - thus endangering their own well-being?
And that what it is all about - and nobody dares to mention it?
Furthermore - the most ignored fact yesterday - almost silently, but very quietly - the centre-left parties in Germany changed tack - 179 degree turnaround - after so many years, they are opposed to Eurobonds.
In case nobody noted - Germany goes to the polls in about 15 month time - and the German population - is utterly opposed to more burden-sharing.
And what happened to the "Germany guarantees are deposits in the periphery banks scheme"?
As the first commentator here noted - Hollande can do a lot of things without more core money - they are just unpleasant and not what he promised on the campaign trail.
Though luck!

no, Hollande was in mission, Obama ask him to press on Growth, and on to solve the euro crisis, he even offered that a american team of economists go to the EU summit, this was the deal for the american support of France leaving Afghanistan (and to make it in coordination with NATO) a year before it was forecasted, and besides, Obama needs that the EZ recovers some of growth to get re-elected, hence their convergeance

the Germans are making, wether the rearguard action (if they really want to keep the euro), wether stalmating, so that they will not be seen as those by whom the euro collapse (they built a € 480 billion firewall for their banks), and thus to recover their DM, it does look that the later alternative is what the markets are betting on, since when investors are buying bonds that don't bring them interests? and they are competing for getting such O% interest bonds, because of the DM future value. So, is it what Madame Nein is expecting? I don't think that she is innocent !

Otherwise, Hollande is sitting on a discussion argument, while Merkel stands by her's, but if the euro has a future, they both are condamne to mix thir argumentation.

Anyways, it's good news then for the rest of EZ, the euro will devaluate at least for 30%, and France, Spain, Italy products will become competitive again

Again one TE article supporting EUROBONDS and German taxpayer paying everything.

As far as I understand the situation now, UK and US are on a very shaky recovery or even recession right now with alarming deficits. Their banks (not any longer German or French after the restructuring cut) are holding a big part of the Greek debt and are dependent on a booming financial sector.

So tell me, whose economy will be hit hard by a Grexit and why is TE not appealing UK to collateralize Greek debt? Voters are against it? Well, same here in Germany...

Europe has to be very careful not to divide people up in groups as that is how you end up in wars. It might be nice to form a German land and a Roman land and a Greek land as that is the way you think but we live in a different world today not based on where people live and who they are.
The British are having the same problem of people breaking up in groups like Europe already is.
In the meantime all the rest of the world are forming into groups for other reasons. And Europe cannot do anything? Come on! Get your people talking to each other. Even the Arabs are doing that and look what they have done. Find your way! Not only will you save Europe, you will save the world. And that is what you claim you all are good at, and you are as a group since the beginning. Think BIG.

Quite easy to say if they only would understand each other:)
The French do not speak German, the Germans do not speak French and all around in Europe the same pattern.
The different languages make it impossible that Europeans can talk to each other.
And then there is a difference in mentality which is as important as the different languages.
So no chance for Europe.
Europe will disband.

I have been in many meetings in Europe where everyone spoke a different language and we all spoke English. I was in a meeting in Germany where everyone had an America name and were speaking German. When I pointed this out we all became friends. No problem there. German is very easy for English speaking people. French is very difficult and do not want us to speak their language. Everyone in Europe knows how to handle this except those wanting to make an issue over it. That is because they are all human and like to make problems, or have fun. if you want to put it that way.

My nick is based on the New York Yankees base ball team which I watch to maintain my sanity.
I would love to have a friend in Germany who reads this magazine and comments on Charlemagne. Be aware that I am very old in my nineties and I was in our military from the beginning to past the end.

You have got it right. You should never give your e-mail address to anyone in these comments as it can be picked up by anyone who reads these comments.
So how do you connect to anyone? Like I wanted to connect with Mrs. Merkel and I did with the help of The Economist but how do you get her to reply ?--impossible! I have the knodledge based upon experience that will replace their nuclear power plants and I thought she would at least have someone check it out. It is too good to be true and I am too old and I am running out of time.

Well, now you hit the point.
Indeed there are Americans who do speak German with passion and it is not Mr. Schwarzenegger who speaks perfect German.
But what you describe will never happen with British and not in the next series of centuries and with the French it is worse.
Talking German in Britain usually brings very big problems on the spot.
So I always tried to avoid speaking not even a single German word.

I feel sorry for you and I understand what you are saying. Here in the US we have lots of people who are German's including my wife whose family has been here a very long time. I think you should ignore this because things are moving fast here, and there, which has nothing to do with our past, and what language anyone speaks.

That is because I am tone deaf and have a very bad accent. But I can read French. Thank you. Incidently my ancestors were French and we used French words when I was young and I can understand French in Canada. Now I have trouble understanding everyone because they speak too fast and the TV speeds it up to find time for more commercials.

Wow! That is a shocker! A politician who doesn't reveal his true stripes until AFTER he's elected? Never seen that before!

And now, all the socialists in Europe are banding together to blackmail Germany into paying higher borrowing costs so that they can finance their spending sprees more cheaply? Can't say I blame the Germans for resisting for one simple reason - there is no effective countervailing mechanism to ensure that the over-spenders can't continue to overspend.

This is, and always has been, the big fallacy of the Euro. How can you have a single, unified currency without unified fiscal and social policies that are actually enforceable? The simple answer is, you can't.

Personally, I think Spain, Ireland and Portugal are serious about reducing their deficits but I have considerable doubt about the French and the Greeks. They are both looking for a way to continue their profligate ways and have someone else foot a big part of the bill. Certainly the French continue to talk about reducing the retirement age and the length of the work-week. In fact, I believe one of the candidates in the recent election made a statement to the effect that he would welcome a zero hour work-week! Does this sound like a country that is serious about getting its spending down and its GDP up?

However, I'm sure that Germany will eventually cave in on the issue to some extent. That may calm the markets for a few months, but it's a slippery slope when there is no workable mechanism to ensure compliance on the part of all with the terms of the Maastricht Treaty.

twin posts induce twin responses:
"I think Spain, Ireland and Portugal are serious about reducing their deficits but I have considerable doubt about the French and the Greeks"
you look very addicted to the appearences, didn't you write?
"A politician who doesn't reveal his true stripes until AFTER he's elected?"
Again, you were blurred by the appearences, or was it rather by your old french bashing clichés?
How revealing of your mental process to put the French with Greece in the same basket, I would have appreciated if you'd said that that was because the both counties, at least, don't bow to Germany's coercicive policies !
for the rest I recommand you to read my response to Ηαρποκρατης May 26th, 19:51 there are official links that contradict your assertions

Geez! Over 40 posts in the last couple of days! Wouldn't it be easier to make just one post, clearly and succinctly stating your point of view instead of expending so much time and energy refuting what everyone else has to say?

"one of the candidates in the recent election made a statement to the effect that he would welcome a zero hour work-week!"

Isn't that the not so hidden goal of successful capitalists and their heirs? In addition you (who's surprised) altered his statement, which included the words "if possible at all". He was the far left candidate and got close to 2% votes if memory serves. But no problem, the priority is to call France 'not serious'!

The point is that the lunatic left seems to have a larger following in France than in any other European country except perhaps Greece. And it was M. Hollande himself who promised to reduce the retirement age. Neither bodes well for bringing spending under control.

but my post had some necessities, rectifying frenchbashing posters lies among them yours, that you duplicted on two different threads

Hollande will only rectify justice for the workers that started their career earlier, from 18 years old, and that have accomplished their 41/42 years of work (and it's the very condition for all the labour force), that concerns only painful jobs

I understand that your agenda isn't to digg into facts, but to jump on the medias tittles and to make your bashing honey from them

"that why you can not trust those back stabbers, always begging for help."

The greatest gift to humanity that Italians ever performed was "backstabbing" nazi Germany.

Italy should have been given a gold medal and seat in the UN security council for performing an invaluable service to all mankind by being a hinderance to Nazi Germany's greed and lust for the lands & resources of its neighbors.

Perhaps it is not too late, the UN can still recognise Italy for its great contribution to mankind during WW2 - being a drag on nazi Germany.

Eurobonds cannot work because it fails the ultimate test i.e. the back up of the populace. Eurobonds ultimately mean money transfers from north to south. In order for that work, European nations would have to be much more homogenous. The obvious heterogeneity would simply mean even more anger between nations and cause even bigger havoc in the future.

Eurobonds will happen, as Hollande correctly found: as an endpoint of a process. Contrary to what is proclaimed, Merkel is not rejecting them out of hand. The German opposition parties support them at any rate and will make an effort to sell them to the electorate, or help camouflaging them, if not before the national elections next year.

The money transfer from North to South, and West to East, is taking place since decades, with hundreds of billions being pored into weaker regions. It can be seen as part of the problem, aggravating the inflow of capital and ruining the incentives for good governance.

In this, the heterogeneity is not a problem per se. On the positive the individual national traits are a source of admiration and enjoyment. There is no animosity against supporting other countries in the North and West, but against misuse of the funds, which are ultimately seen as squandered tax.

Despite recent conflagrations, Germans did not stop to admire Greece' achievements and contributions to European culture and that is not seen disjoint from the Greek population of today. Germans adore the Italians, admire the Spanish, highly respect the British for their ways. French is in passing and not too seriously accepted as culturally superior, and the Polish have entered into a camaraderie of hard workers, defying stereotypes. If it was believed that funds actually help, no matter into what direction they were spent, they would not cause the same controversy.

Real or perceived graft and enrichment are what is loathed and cause flares of unsavory nationalism. The alienation of today, sadly visible in this forum, was not caused by the diversity between European nations but by allegations of fraud and counter-allegations of lust for power.

"The introduction of the euro has had many healthy effects on the German economy."
(Speech by Mr Ernst Welteke, President of the Deutsche Bundesbank, to the German-British Chamber
of Industry and Commerce in London on 29 May 2001. You can find the whole Speech in www.bis.org (Bank for international settlements)

Again, the question is very simple: More Europe (United States of Europe - project bonds) or No Europe at all ( no project bonds -The End of The Euro and of the European Union - The first page of the Economist says it all).

As an aside, I believe it translates:
"When ideas are missing, words come easy."
I am not sure if you originally meant to express that the ideas are missing, which may be the real problem and especially Merkel is often accused for not thinking big enough.

Eurobonds cannot work because it fails the ultimate test i.e. the back up of the populace. Eurobonds ultimately mean money transfers from north to south. In order for that work, European nations would have to be much more homogenous. The obvious heterogeneity would simply mean even more anger between nations and cause even bigger havoc in the future.

Same old story.
2 economies with vastly different efficiencies unite. (east-west germany, Germany-periphery)
Inefficient economy crumbles. (huge unemployment and low gdp/growth in east germany compared with west germany even today, spain/greece have huge unemployment and a recession today)
Heres the difference, germany injects billions of dollars into east germany in the form of investments and subsidies (even today!), while it demands the opposite to periphery countries by demanding massive austerity.
Everyone agrees that the periphery needs to tighten their belt and start saving more, but at the same time Germany (as defacto "leader" of the EU ) needs reassure the periphery that with austerity will come investments in the same manner that it invested in east germany.
The alternative is that people in the periphery just move to prosperous parts of EU (germany), just like millions of east germans moved to the west in order to live in a better economy. Im sure that would cause social/political instability in the face of extremists all too eager to hate immigrants...

Belt tightening can be spread over years. What the pigs really need to do is liberalize their economies. Get rid of rules that prohibit firing people and make sure you start collecting taxes from everyone. With no change to the underlying economy these states are going to continue to fail. No need to throw any money at them until they liberalize.

I said, "at the same time" when referring to belt tightening (which means less consumption spending if it was not clear enough) and promises REAL investments into the economy.

you forget that this is not only economics, its politics.

It will be difficult for indebted countries to undergo liberalization when the people are hurting so bad that voters vote against it. Even the fear of voters turning against exacerbates the problem.

East Germany had "shock" liberalization and look what happened... you even have years of leftist, anti liberalization, parties thriving in east Germany (compared to the west) as a reaction to the chaos of instant reunification.

Hollande has seeked the status of "young leader" of the French American foundation, as many carrierists.
Which means that Hollande is not a revolutionary, he has a bankster of Lazard bank in his team, his finance minister was close to DSK a symbol of "caviar left" ...
As the article noticed, there is an important campaign for elections to "Assemblée nationale", without a majority in national assembly, Hollande would have little power.
Only after elections, will the real Hollande reveal.

"Above all Germany must be reassured that greater risk-sharing will not amount to handing its credit card to profligate governments"

He can't because that is exactly what euro-bonds would be in reality: Germany paying for the others, forever without any control over how its money is spent.
We already have 1 such people in Europe in such a situation (the flemish paying through the nose for francophone belgium, and this since 1830), we don't need another.
If Hollande wants his bonds that France pays for them.

The impossibility of separation in Belgium is also due to the Flemmish wanting to annex francophone Brussels ...
The Flemmish should decide what they want ...
Independence without Brussels annexion, or statu quo.

"the flemish paying through the nose for francophone belgium, and this since 1830"

mere lie, in 1830 Industry and mines were in francophone Belgium, while the Flemish were paysans and fishermen, their harbour got developped by the business trades that the francophone were making with the world

The long-running saga in the Eurozone appears finally headed towards a change in approach.
It took a new French President to push for that change.
Nobody knows what form or shape the final fix for the Euro will take but important points are now being discussed in broad daylight. This is no minor milestone in a currency union whose construction was left grossly unfinished. It was always going to be both hard and challenging.

The Economist has raised all the right points in this summed up article. I would however wish to highlight that simple question on the interest rate differential between Spain and Germany.
Two States sharing the same currency cannot forever face such disparate financial terms.
Which therefore brings the focus on to the best path available aimed at closing a widened gap for the unacceptable consequences it produces.

It would seem to me that the stage is nearly set for major evolution (or something else) to occur within the Eurozone.
It has been suggested that the critical make or break level is now reached whichever way the currency (dis)union is looked at.

"Two States sharing the same currency cannot forever face such disparate financial terms."

Why not? What is the reason behind this axiom?

Interest rates are a risk premium, based on the condition of the bond issuer. And the issuer is in this case the souvereign state of Spain. And therefore it´s conditions apply.

If You want to eleminate different conditions, then You need a federal, super national issuer, like the United States of Europe. And therefore Spain, Germany, ...... would cease to exists as sourvereign entities.

Why not?
The point you make is exactly the presupposition on which the Eurozone has worked since inception with the known outcomes.
An incomplete currency union without every relevant tool in place to back it up has created the atrocious disparities now seen.
Ultimately the EU-European Union might evolve in the direction of a USE as suggested by you. That will have been the vision of the EEC/EU's founding fathers and many European believers over many years.
I don't see that happening anytime soon either.

The 17 Eurozone nations have already pooled significant chunks of their sovereignty. The major task now is to find a midway compromise that makes the common currency work towards prosperity in the real economy across all countries using it.
As it is we may agree that it has done/is doing the opposite even after issues to do with good government/governance are discarded.

why Germany wouldn't accept "fair" eurobonds : each euro-member country having a limited share of GDP in eurobonds, for instance eurobonds financing deficit only below 1.5% GDP and refinancing debt only below 100% GDP
with this system, Greece, and others, would avoid usurious interest rates, without incentive on deficit ...

I'd guess under these conditions none of the troubled club med states would qualify for EB at all. Either because their deficits are much to high (Spain, Portugal) or because their total amount of debt exceeds 100% (Greece, Italy)

In this case, no objections to EB, that are not used at all. But I think this would really contradict the basic concept of EBs...

why Germany wouldn't accept "fair" eurobonds : each euro-member country having a limited share of GDP in eurobonds, for instance eurobonds financing only the share of the deficit below 1.5% GDP and refinancing only the share of the debt below 100% GDP
with this system, Greece, and others, would avoid usurious interest rates on share of deficit below 1.5% GDP and share of debt below 100% GDP, without incentive on deficit ...

Im a bit confused, since Italys old debt, prior to Euro-times, has been accumulated at even higher rates than today- 10% and above, versus 6% today.

So there already IS an interest reduction in place.

And besides this, mutualizing debt, that has been created BEFORE the EMU, under the argument that NOW we are all part of one family, seems to me a bit cheeky. Especially, when You take into consideration, that Italy had twice the acceptable debt to GDP ratio, when it tried to qualify for EMU and was only accepted, because it was a founding member of the EWG.

why the ECB lends to private banks at 1% or less, which then can lend to some states at usurious rates ?
this is privatization of profits of currency creation, whereas currency is issued by states
and when these financial institutions fail at the casino of finance, "too big to fail", and socialization of losses
« It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. » Henry Ford
Germany, with its mini-jobs at 400 euros a month, seems to have drifted towards an unfair wealth distribution model

Well, lending to states simply is forbidden for the ECB under the Maastricht/Lisbon treaty --> therefore NO monetization of state debt (one of the three main guarantees, given to the Germans, for accepting to give up our beloved D-Mark.)
Second, even with its 400,- Euro jobs, the average German wages are clearly ABOVE EMU averages, I think 3rd highest. So we are not talking dumping wages here.
Thirdly, I absolutely agree with You on the "banksters" and "too big to fail" is an insult to market economy / capitalism.
This contradicts the basic principles at the very heart of capitalism. Disgusting.

Ironically, there is a minimum wage in the UK (allbeit only £ 6,08 per hour, in France € 9,19) and not in Germany ...

Bank of England and Federal Reserve use quantitative easing, holding gilts and Treasury notes, which is an incentive to deficits, the euro zone is attacked, whereas the UK or the USA play for time.

EU ideology has failed, there is no "European people", Greeks are not Germans, the euro is a currency set for a country which set prices in the international market, Germany and its hi-tech machines, not for relatively unefficient countries, these countries used devaluations, and can't anymore.

I agree with current Economist editorial : EU split, or solidarity as with German reunification ...

I am not convinced anymore that the UE is useful in anything, there are countries which succeed outside the UE (and the euro) : Switzerland for instance (which hasn't the oil of Norway), Scotland is betting on independence.

On the essential, ecology : forests destruction (soja in Brazil, palm oil in Indonesia, tar sands in Canada), the UE won't ban the selling of products off the destruction of forests.

Well I suppose, You not aware of WHAT You are suggesting here, since the costs of reunification might very likely be unknown outside Germany, so here are some facts on this matter:

During the last 20 Years, West Germany coughed up something between 1.6 to 2.4 TRILLION Euros for the former East Germany (a precise calculation is very difficult as I have understood), basically think of 100 BILLION Euros per Year!

On a per capita basis, there were 16 Mio East Germans, this sums up to >100.000 per man, woman, child.

Now there are 11 Mio Greeks, 8 Mio Portugese, 40+ Mio Spaniards (not counting Italians and the Irish) that would extrapolate to something around 6+ TRILLION Euros in grants over the next 20 Years alone. So please name ANY nation, that would supply that amount of money gifted to its neighbours?!

We really like our European Fellows, but not THAT much.

And besides this, since the former GDR "entered" the BRD, they became subject to the full federal laws, the full influence of the German Government, thus, it was able to have at least reasonable control, on the usage of all that cash. I would have some doubt, that for instance the Greeks would accept that kind of control?!

And if the German taxpayer cannot control the usage of its "solidarity funds" this simply boils down to "taxation without representation". Which is absolutely unacceptable (look into the history books).

This is very myopic. Looking to the East or South, the common values that Europeans share become immediately apparent. They might not deviate as much from North and South America but that is not an argument against Europe's fundamental unity in things that matter.

"the euro is a currency set for a country which set prices in the international market"

The DM had become the de-facto lead currency in Europe by the time of the introduction of the Euro, with many currencies pegged to it, with even less say about its course. The Swiss Franc is basically pegged now. Independence for Scotland was much less attractive if there were not the Euro available to them as a strong economic pillar. That this causes problems for the pegged economies is a valid reason for resolve to go forward towards a union. But there were less incentives for Germany in giving up the DM than for Greece to give up the Drachma, as became apparent with the massively reduced spreads after the introduction of the Euro.

"these countries used devaluations, and can't anymore."

There is a tendency to ignore that devaluation means that foreign debts and imports become a huge problem then, right away. This is one of the very reasons why Germany favors a strong currency and there are many countries w/o natural resources in Europe for which the situation is similar to that of Germany.

Devaluation is not a benign cure-all. It is a more comfortable means to deflate the national level of income after it got out of control. But at the same time it 'increases' national and private debt, which is usually nominated in a stronger 3rd party currency and severely hurts the parts of the economy that are reliant on foreign investment or imported goods.

And blaming the EU for doing too little for ecology seems to have limited meaning while you can't name any other group that does more.

Solidarity can't be at the same level as with German reunification, and net contributing countries should set the allocation of resources (think of how often solidarity money is wasted in the third world), obviously.

In France, the country at the centre of the western world, historically and geographically, the EU was sold by politicians as an ideal of democracy, economic growth, ecology ...

EU achievements are far from it.

If a French president asked other EU leaders to agree on a EU selling ban on(by)products off ecologic crimes (as Indonesian palm oil, Brazilian soja, Canadian oil), do you really think that, to name only 2, the UK or Germany would agree ?